The City Council tonight approved — by a 4 to 1 vote (I opposed) — pre-paying an additional $7,000,000 towards the city’s pension obligations. A pre-payment means investing money in the California Public Employee Retirement System (CALPERS) above and beyond what the city is required to contribute.
This latest prepayment was on top of a $7,000,000 prepayment made a couple of years ago. That’s $14,000,000 invested in bolstering CALPERS so our employees can receive their pensions when they retire.
Now, the city must meet its pension obligations. So to some extent these pre-payments are a “benefit” to residents because they reduce the risk taxes might have to be raised or services cut in the future to meet the obligation. It’s also worth remembering public employee pensions are protected by law.
Prepayments are also a significant benefit to employees because they reduce the risk employee pension contributions might have to be further increased1.
To date, the city has paid every bill CALPERS has ever sent us. Even though those bills have risen significantly in the last decade.
How was this possible? Because the city was becoming such an attractive place to live and work that its revenues were rising faster than its expenses. In fact, as of last June 30th the city had $38,000,000 in reserves2.
Given our track record and other things the money could’ve funded it didn’t make sense to me to make that first prepayment several years ago. It makes even less sense to me to double-down and spend another $7,000,000 the same way today. Investing $7,000,000 — actually, $14,000,000 — to reduce a 2030 obligation when we have major problems to address in 2020 is, at the very least, an unusual choice.
It’s also odd, in the midst of all our current crises, this prepayment was approved, without discussion, outside of our budget process and with little information from staff on what financial risk the city is facing as a result of the pandemic. We might well come to wish in the not too distant future we had held onto this latest $7,000,000 prepayment.
I can’t help thinking what that $14,000,000 could have done to benefit the community — benefit it directly, immediately, today — if other community needs and interests had been considered. But the top priority seems to be to protect pensions. Which are, as I mentioned above, already heavily protected by law.
If you’re okay with $14,000,000 not being available to solve community problems today, or improving our quality of life by investing in projects benefiting the community — which, based on our recent history, would further enhance city revenues, making it easier to pay bigger pension bills — you don’t need to do anything.
But if you’re not I think it’s past time to get involved.
Theoretically employee benefits might also be subject to reduction. But such reductions may be unlawful. Of course, more money prepaid into pensions by the city reduces the risk employees might see reductions in their benefits if the legal environment were to change. ↩
Don’t be confused by almost all the money being earmarked for one thing or another. The $38,000,000 could be deployed to any valid purpose which a majority of the Council approved. The earmarks are a statement of intent not of commitment. ↩